☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 54-1910453 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2500 Trex Way Winchester, Virginia | 22601 | |
(Address of principal executive offices) | (Zip Code) |
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulationand post such files). Yes ☒ No ☐ or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in RuleLarge accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
INDEX
1
Item 1. | Condensed Consolidated Financial Statements |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 140,194 | $ | 106,168 | $ | 442,941 | $ | 384,294 | ||||||||
Cost of sales | 84,910 | 76,223 | 250,473 | 235,312 | ||||||||||||
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Gross profit | 55,284 | 29,945 | 192,468 | 148,982 | ||||||||||||
Selling, general and administrative expenses | 24,919 | 19,379 | 75,409 | 64,786 | ||||||||||||
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Income from operations | 30,365 | 10,566 | 117,059 | 84,196 | ||||||||||||
Interest expense, net | 59 | 77 | 515 | 1,108 | ||||||||||||
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Income before income taxes | 30,306 | 10,489 | 116,544 | 83,088 | ||||||||||||
Provision for income taxes | 10,208 | 2,702 | 39,715 | 27,871 | ||||||||||||
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Net income | $ | 20,098 | $ | 7,787 | $ | 76,829 | $ | 55,217 | ||||||||
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Basic earnings per common share | $ | 0.68 | $ | 0.27 | $ | 2.61 | $ | 1.88 | ||||||||
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Basic weighted average common shares outstanding | 29,404,049 | 29,295,284 | 29,385,722 | 29,419,958 | ||||||||||||
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Diluted earnings per common share | $ | 0.68 | $ | 0.26 | $ | 2.60 | $ | 1.86 | ||||||||
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Diluted weighted average common shares outstanding | 29,578,216 | 29,516,718 | 29,563,497 | 29,635,796 | ||||||||||||
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Comprehensive income | $ | 20,098 | $ | 7,787 | $ | 76,829 | $ | 55,217 | ||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 303,836 | $ | 188,472 | $ | 899,092 | $ | 913,950 | ||||||||
Cost of sales | 172,941 | 142,264 | 517,321 | 575,452 | ||||||||||||
Gross profit | 130,895 | 46,208 | 381,771 | 338,498 | ||||||||||||
Selling, general and administrative expenses | 44,532 | 26,857 | 133,694 | 106,387 | ||||||||||||
Income from operations | 86,363 | 19,351 | 248,077 | 232,111 | ||||||||||||
Interest (income) expense, net | (734 | ) | — | 2,555 | (103 | ) | ||||||||||
Income before income taxes | 87,097 | 19,351 | 245,522 | 232,214 | ||||||||||||
Provision for income taxes | 21,831 | 4,928 | 62,089 | 57,665 | ||||||||||||
Net income | $ | 65,266 | $ | 14,423 | $ | 183,433 | $ | 174,549 | ||||||||
Basic earnings per common share | $ | 0.60 | $ | 0.13 | $ | 1.69 | $ | 1.55 | ||||||||
Basic weighted average common shares outstanding | 108,583,009 | 110,140,496 | 108,707,699 | 112,609,684 | ||||||||||||
Diluted earnings per common share | $ | 0.60 | $ | 0.13 | $ | 1.69 | $ | 1.55 | ||||||||
Diluted weighted average common shares outstanding | 108,702,495 | 110,300,017 | 108,829,374 | 112,787,994 | ||||||||||||
Comprehensive income | $ | 65,266 | $ | 14,423 | $ | 183,433 | $ | 174,549 | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 25,541 | $ | 18,664 | ||||
Accounts receivable, net | 70,802 | 48,039 | ||||||
Contract retainage | 1,893 | — | ||||||
Inventories | 26,029 | 28,546 | ||||||
Prepaid expenses and other assets | 3,912 | 10,400 | ||||||
Revenues in excess of billings | 4,706 | — | ||||||
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Total current assets | 132,883 | 105,649 | ||||||
Property, plant and equipment, net | 102,788 | 103,286 | ||||||
Goodwill and other intangibles | 72,544 | 10,523 | ||||||
Other assets | 2,981 | 1,972 | ||||||
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Total assets | $ | 311,196 | $ | 221,430 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 15,960 | $ | 10,767 | ||||
Accrued expenses and other liabilities | 41,327 | 34,693 | ||||||
Accrued warranty | 6,725 | 5,925 | ||||||
Billings in excess of revenues | 1,353 | — | ||||||
Customer deposits | 953 | — | ||||||
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Total current liabilities | 66,318 | 51,385 | ||||||
Deferred income taxes | 894 | 894 | ||||||
Non-current accrued warranty | 29,733 | 31,767 | ||||||
Other long-term liabilities | 2,676 | 3,223 | ||||||
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Total liabilities | 99,621 | 87,269 | ||||||
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Commitments and contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Common stock, $0.01 par value, 80,000,000 shares authorized; 34,918,427 and 34,894,233 shares issued and 29,424,746 and 29,400,552 shares outstanding at September 30, 2017 and December 31, 2016, respectively | 349 | 349 | ||||||
Additionalpaid-in capital | 120,667 | 120,082 | ||||||
Retained earnings | 264,071 | 187,242 | ||||||
Treasury stock, at cost, 5,493,681 shares at September 30, 2017 and December 31, 2016 | (173,512 | ) | (173,512 | ) | ||||
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Total stockholders’ equity | 211,575 | 134,161 | ||||||
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Total liabilities and stockholders’ equity | $ | 311,196 | $ | 221,430 | ||||
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thousands, except share data)
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 4,644 | $ | 12,325 | ||||
Accounts receivable, net | 200,909 | 98,057 | ||||||
Inventories | 60,384 | 141,355 | ||||||
Prepaid expenses and other assets | 7,130 | 35,105 | ||||||
Total current assets | 273,067 | 286,842 | ||||||
Property, plant and equipment, net | 671,035 | 589,892 | ||||||
Operating lease assets | 27,286 | 30,991 | ||||||
Goodwill and other intangible assets, net | 18,267 | 18,582 | ||||||
Other assets | 7,157 | 7,398 | ||||||
Total assets | $ | 996,812 | $ | 933,705 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 31,795 | $ | 19,935 | ||||
Accrued expenses and other liabilities | 88,919 | 44,064 | ||||||
Accrued warranty | 5,092 | 4,600 | ||||||
Line of credit | 56,500 | 222,000 | ||||||
Total current liabilities | 182,306 | 290,599 | ||||||
Deferred income taxes | 68,224 | 68,224 | ||||||
Operating lease liabilities | 20,197 | 23,974 | ||||||
Non-current accrued warranty | 17,874 | 20,999 | ||||||
Other long-term liabilities | 16,560 | 11,560 | ||||||
Total liabilities | 305,161 | 415,356 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity | ||||||||
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Common stock, $0.01 par value, 360,000,000 shares authorized; 140,958,411 and 140,841,833 shares issued and 108,595,105 and 108,743,423 share outstanding, at September 30, 2023 and December 31, 2022, respectively | 1,410 | 1,408 | ||||||
Additional paid-in capital | 137,088 | 131,539 | ||||||
Retained earnings | 1,314,107 | 1,130,674 | ||||||
Treasury stock, at cost, 32,363,306 shares at September 30, 2023 and 32,098,410 shares at December 31, 2022 | (760,954 | ) | (745,272 | ) | ||||
Total stockholders’ equity | 691,651 | 518,349 | ||||||
Total liabilities and stockholders’ equity | $ | 996,812 | $ | 933,705 | ||||
Changes in Stockholders’ Equity
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating Activities | ||||||||
Net income | $ | 76,829 | $ | 55,217 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 12,065 | 10,893 | ||||||
Stock-based compensation | 3,913 | 3,806 | ||||||
Loss (gain) on disposal of property, plant and equipment | 1,720 | (189 | ) | |||||
Othernon-cash adjustments | (405 | ) | (285 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (14,407 | ) | 1,580 | |||||
Contract retainage | 55 | — | ||||||
Inventories | 4,860 | 6,597 | ||||||
Prepaid expenses and other assets | 2,987 | (771 | ) | |||||
Revenues in excess of billings | (1,243 | ) | — | |||||
Accounts payable | 1,203 | (6,761 | ) | |||||
Accrued expenses and other liabilities | (1,430 | ) | 5,005 | |||||
Billings in excess of revenues | (399 | ) | — | |||||
Customer deposits | (609 | ) | — | |||||
Income taxes receivable/payable | 7,698 | 8,487 | ||||||
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Net cash provided by operating activities | 92,837 | 83,579 | ||||||
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Investing Activities | ||||||||
Expenditures for property, plant and equipment | (11,108 | ) | (8,534 | ) | ||||
Proceeds from sales of property, plant and equipment | — | 4,349 | ||||||
Acquisition of business | (71,523 | ) | — | |||||
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Net cash used in investing activities | (82,631 | ) | (4,185 | ) | ||||
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Financing Activities | ||||||||
Borrowings under line of credit | 201,000 | 242,700 | ||||||
Principal payments under line of credit | (201,000 | ) | (249,700 | ) | ||||
Repurchases of common stock | (3,617 | ) | (55,185 | ) | ||||
Financing costs | — | (485 | ) | |||||
Proceeds from employee stock purchase and option plans | 288 | 218 | ||||||
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Net cash used in financing activities | (3,329 | ) | (62,452 | ) | ||||
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Net increase in cash and cash equivalents | 6,877 | 16,942 | ||||||
Cash and cash equivalents, beginning of period | 18,664 | 5,995 | ||||||
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Cash and cash equivalents, end of period | $ | 25,541 | $ | 22,937 | ||||
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Supplemental Disclosure: | ||||||||
Cash paid for interest | $ | 416 | $ | 849 | ||||
Cash paid for income taxes, net | $ | 32,016 | $ | 19,435 |
thousands, except share data)
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance, December 31, 2022 | 108,743,423 | $ | 1,408 | $ | 131,539 | $ | 1,130,674 | 32,098,410 | $ | (745,272 | ) | $ | 518,349 | |||||||||||||||
Net income | — | — | — | 41,131 | — | — | 41,131 | |||||||||||||||||||||
Employee stock plans | 8,504 | — | 316 | — | — | — | 316 | |||||||||||||||||||||
Shares withheld for taxes on awards | (28,773 | ) | — | (1,592 | ) | — | — | — | (1,592 | ) | ||||||||||||||||||
Stock-based compensation | 80,362 | 1 | 1,972 | — | — | — | 1,973 | |||||||||||||||||||||
Balance, March 31, 2023 | 108,803,516 | $ | 1,409 | $ | 132,235 | $ | 1,171,805 | 32,098,410 | $ | (745,272 | ) | $ | 560,177 | |||||||||||||||
Net income | — | — | — | 77,036 | — | — | 77,036 | |||||||||||||||||||||
Employee stock plans | 7,971 | — | 323 | — | — | — | 323 | |||||||||||||||||||||
Shares withheld for taxes on awards | (15,663 | ) | — | (855 | ) | — | — | — | (855 | ) | ||||||||||||||||||
Stock-based compensation | 36,888 | — | 2,590 | — | — | — | 2,590 | |||||||||||||||||||||
Repurchases of common stock | (264,896 | ) | — | — | — | 264,896 | (15,746 | ) | (15,746 | ) | ||||||||||||||||||
Balance, June 30, 2023 | 108,567,816 | $ | 1,409 | $ | 134,293 | $ | 1,248,841 | 32,363,306 | $ | (761,018 | ) | $ | 623,525 | |||||||||||||||
Net Income | — | — | — | 65,266 | — | — | 65,266 | |||||||||||||||||||||
Employee stock plans | 5,448 | — | 286 | — | — | — | 286 | |||||||||||||||||||||
Shares withheld for taxes on awards | (4,140 | ) | — | (312 | ) | — | — | — | (312 | ) | ||||||||||||||||||
Stock-based compensation | 25,981 | 1 | 2,821 | — | — | — | 2,822 | |||||||||||||||||||||
Repurchases of common stock | — | — | — | — | — | 64 | 64 | |||||||||||||||||||||
Balance, September 30, 2023 | 108,595,105 | $ | 1,410 | $ | 137,088 | $ | 1,314,107 | 32,363,306 | $ | (760,954 | ) | $ | 691,651 | |||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance, December 31, 2021 | 115,148,152 | $ | 1,407 | $ | 127,787 | $ | 946,048 | 25,586,601 | $ | (350,208 | ) | $ | 725,034 | |||||||||||||||
Net income | — | — | — | 71,211 | — | — | 71,211 | |||||||||||||||||||||
Employee stock plans | 9,081 | — | 523 | — | — | — | 523 | |||||||||||||||||||||
Shares withheld for taxes on awards | (35,856 | ) | — | (2,912 | ) | — | — | — | (2,912 | ) | ||||||||||||||||||
Stock-based compensation | 79,926 | 1 | 2,225 | — | — | — | 2,226 | |||||||||||||||||||||
Repurchases of common stock | (833,963 | ) | — | — | — | 833,963 | (75,017 | ) | (75,017 | ) | ||||||||||||||||||
Balance, March 31, 2022 | 114,367,340 | $ | 1,408 | $ | 127,623 | $ | 1,017,259 | 26,420,564 | $ | (425,225 | ) | $ | 721,065 | |||||||||||||||
Net income | — | — | — | 88,916 | — | — | 88,916 | |||||||||||||||||||||
Employee stock plans | 8,834 | — | 429 | — | — | — | 429 | |||||||||||||||||||||
Stock-based compensation | 2,024 | — | 1,057 | — | — | — | 1,057 | |||||||||||||||||||||
Repurchases of common stock | (2,814,817 | ) | — | — | — | 2,814,817 | (169,992 | ) | (169,992 | ) | ||||||||||||||||||
Balance, June 30, 2022 | 111,563,381 | $ | 1,408 | $ | 129,109 | $ | 1,106,175 | 29,235,381 | $ | (595,217 | ) | $ | 641,475 | |||||||||||||||
Net income | — | — | — | 14,423 | — | — | 14,423 | |||||||||||||||||||||
Employee stock plans | 11,003 | — | 429 | — | — | — | 429 | |||||||||||||||||||||
Shares withheld for taxes on awards | (57 | ) | — | (3 | ) | — | — | — | (3 | ) | ||||||||||||||||||
Stock-based compensation | 10,520 | — | 249 | — | — | — | 249 | |||||||||||||||||||||
Repurchases of common stock | (1,710,676 | ) | — | — | — | 1,710,676 | (100,035 | ) | (100,035 | ) | ||||||||||||||||||
Balance, September 30, 2022 | 109,874,171 | $ | 1,408 | $ | 129,784 | $ | 1,120,598 | 30,946,057 | $ | (695,252 | ) | $ | 556,538 | |||||||||||||||
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 183,433 | $ | 174,549 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 37,194 | 33,269 | ||||||
Stock-based compensation | 7,384 | 3,531 | ||||||
Loss (gain) on disposal of property, plant and equipment | 1,081 | (43 | ) | |||||
Other non-cash adjustments | (169 | ) | (171 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (102,852 | ) | 62,343 | |||||
Inventories | 80,971 | (48,362 | ) | |||||
Prepaid expenses and other assets | 4,376 | 7,125 | ||||||
Accounts payable | 10,678 | (3,769 | ) | |||||
Accrued expenses and other liabilities | 39,039 | 8,842 | ||||||
Income taxes receivable/payable | 27,090 | 7,079 | ||||||
Net cash provided by operating activities | 288,225 | 244,393 | ||||||
INVESTING ACTIVITIES | ||||||||
Expenditures for property, plant and equipment | (112,920 | ) | (108,163 | ) | ||||
Proceeds from sales of property, plant and equipment | — | 45 | ||||||
Net cash used in investing activities | (112,920 | ) | (108,118 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Borrowings under line of credit | 509,500 | 156,000 | ||||||
Principal payments under line of credit | (675,000 | ) | (80,000 | ) | ||||
Repurchases of common stock | (18,441 | ) | (347,957 | ) | ||||
Proceeds from employee stock purchase and option plans | 925 | 1,381 | ||||||
Financing costs | 30 | (867 | ) | |||||
Net cash used in financing activities | (182,986 | ) | (271,443 | ) | ||||
Net decrease in cash and cash equivalents | (7,681 | ) | (135,168 | ) | ||||
Cash and cash equivalents, beginning of period | 12,325 | 141,053 | ||||||
Cash and cash equivalents, end of period | $ | 4,644 | $ | 5,885 | ||||
Supplemental Disclosure: | ||||||||
Cash paid for interest, net of capitalized interest | $ | 4,165 | $ | — | ||||
Cash paid for income taxes, net | $ | 35,106 | $ | 50,585 | ||||
Supplemental non-cash investing and financing disclosure: | ||||||||
Capital expenditures in accounts payable | $ | 1,183 | $ | 787 |
(Unaudited).
September 30, 2022
1. | BUSINESS AND ORGANIZATION |
2. | BASIS OF PRESENTATION |
Certain reclassifications have been made to prior period balances to conform to current year presentation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Trex Wood-Polymer Espana, S.L, for all periods presented. Intercompany accounts and transactions have been eliminated in consolidation.
Theunaudited consolidated results of operations for the three and nine months ended September 30, 20172023, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. 2023. The Company’s results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, interest rates, the impact of any supply chain disruptions, economic conditions, and/or any adverse effects from global health pandemics and geopolitical conflicts. Towards the end of June 2022, the Company experienced a reduction in demand from its distribution partners, which the Company believed was primarily spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment and expectations of a general slowing in the economy. As a result, beginning in the third quarter of 2022 the Company’s channel partners met demand partially through inventory drawdown rather than reordering products and maintaining current inventories. This inventory recalibration was completed by year end.
3. | SALE OF TREX COMMERCIAL PRODUCTS, INC. |
In addition
Revenue Recognition
For Trex Commercial Products, the Company recognizes revenue using the percentageSeptember 30, 2022.
4. | RECENTLY ADOPTED ACCOUNTING |
Three Months Ended September 30, 2016 | ||||||||
As Reported | Adjusted | |||||||
(in thousands, except share and per share data) | ||||||||
Provision for income taxes | $ | 3,591 | $ | 2,702 | ||||
Net Income | $ | 6,898 | $ | 7,787 | ||||
Basic net income per share | $ | 0.24 | $ | 0.27 | ||||
Diluted net income per share | $ | 0.23 | $ | 0.26 | ||||
Diluted weighted average common shares outstanding | 29,457,653 | 29,516,718 |
Nine Months Ended September 30, 2016 | ||||||||
As Reported | Adjusted | |||||||
(in thousands, except share and per share data) | ||||||||
Provision for income taxes | $ | 29,510 | $ | 27,871 | ||||
Net Income | $ | 53,578 | $ | 55,217 | ||||
Basic net income per share | $ | 1.82 | $ | 1.88 | ||||
Diluted net income per share | $ | 1.81 | $ | 1.86 | ||||
Diluted weighted average common shares outstanding | 29,581,578 | 29,635,796 | ||||||
Cash flows provided by operating activities | $ | 81,880 | $ | 83,579 | ||||
Cash flows used in financing activities | $ | (60,573 | ) | $ | (62,452 | ) |
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share for 2016, which did not materially increase the diluted weighted average common shares outstanding.
Topic 848. In May 2017,March 2020, the FASB issued ASU2017-09,2020-04Compensation—Stock CompensationReference Rate Reform (Topic 718), Scope Modification Accounting.” The guidance clarified when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value (or calculated intrinsic value, if those amounts are being used to measure the award under ASC 718), the vesting conditions, or the classification848): Facilitation of the award (as equityEffects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASUliability) changes asanother reference rate expected to be discontinued. The FASB included a result of the change in terms or conditions. The guidance is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The Company intends to adopt the guidancesunset provision within Topic 848 based on the effective date and does not believe adoption will have a material impact on its financial condition or resultsexpectations of operations.
In January 2017,when the FASB issued ASUNo. 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance is to be applied prospectively, and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. The Company intends to adopt the guidance on the effective date and does not believe adoption will have a material impact on its financial condition or results of operations.
In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The guidance isLIBOR would cease being published intended to reduce diversity in practice across all industries in how certain transactions are classified inhelp stakeholders during the statement of cash flows.global market-wide reference rate transition period. The guidance is effective for financial statements issued for fiscal yearsall entities as of March 12, 2020 through December 31, 2024 and can be adopted as of any date from the beginning after December 15, 2017, andof an interim periods within those fiscal years. Early adoptionperiod that includes or is permitted.subsequent to March 12, 2020. The guidance requires application using a retrospective transition method. The Company intends to adopt the guidance on the effective date and doesamendments did not believe adoption will have a material impacteffect on itsthe Company’s consolidated financial statements.
In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842).” The standard requires lessees to recognize leases on the balance sheet as aright-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. The liability will be equal to the present value of the lease payments. The asset will be based on the liability, subject to adjustment. Currently, under existing U.S. generally accepted accounting standards, the Company does not recognize on the balance sheet aright-of-use asset or lease liability related to its operating leases. For income statement purposes, the leases will continue to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) and finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The standard must be adopted using the modified retrospective transition method and provides for the option to elect a package of practical expedients upon adoption. The Company intends to adopt the standard in the first quarter of fiscal 2019 and is assessing the impact of adoption of the standard on its consolidated financial statements and related note disclosures. The Company has not made any decision on the option to elect adoption of the practical expedients.
In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606),” and issued subsequent amendments to the initial guidance in August 2015 within ASUNo. 2015-14, in March 2016 within ASUNo. 2016-08, in April 2016 within ASUNo. 2016-10, in May 2016 within ASUNo. 2016-12, and in December 2016 within ASUNo. 2016-20 (collectively, the new standard). The new standard provides a single, comprehensive model for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new standard requires an entity to recognize revenue when it satisfies a performance obligation at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring control of goods or services to a customer. The Company intends to adopt the new standard in the first quarter of fiscal 2018. Currently, the Company intends to use the retrospective application to each reporting period presented, with the option to elect certain practical expedients as defined in the new standard. The Company has substantially completed evaluation of its Trex Residential Products segment and believes that
adoption of the new standard will not have a significant impact on that segment. The Company continues to evaluate the impact of the new standard on its recently acquired Trex Commercial Products segment and expects to complete the evaluation during the fourth quarter of 2017. The Company expects expanded financial statement note disclosure. The Company continues to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change.
5. | INVENTORIES |
On July 31, 2017, through its newly-formed, wholly-owned subsidiary, Trex Commercial Products, the Company acquired certain assets and assumed certain liabilities of SC Company for $71.8 million in cash, subject to adjustment pending final determination of working capital at closing. The Company used cash on hand and $30.0 million of funding from its existing revolving credit facility, which was fully paid on August 17, 2017, to acquire the assets. The acquired business designs, engineers and markets modular architectural railing systems and solutions for the commercial and multifamily markets, and provides staging, acoustical and seating systems for commercial markets, including sports stadiums and performing arts venues. As a result of the purchase, the Company gained access to growing commercial markets, expanded its custom design and engineering capabilities, and added the contract architect and specifier communities as new channels for its products.
The acquisition was accounted for using the acquisition method of accounting under U.S. Generally Accepted Accounting Principles, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, “Fair Value Measurements and Disclosures.” The Company believes that the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions. The Company’s consolidated results of operations for the quarterly and nine-month period ended September 30, 2017 include the operating results of the acquired business from the date of acquisition through quarter end. The Company’s consolidated balance sheet at September 30, 2017 includes the acquired assets and any liabilities assumed.
Based on the Company’s preliminary valuation, a total estimated consideration of $71.8 million has been allocated on a preliminary basis to the assets acquired and liabilities assumed, as follows (in thousands). A final determination of the purchase price and adjustment to the fair values of assets acquired and liabilities assumed and finalization of the valuation report will be completed upon the final determination of working capital at closing:
Accounts receivable, net | $ | 8,357 | ||
Contract retainage | 1,948 | |||
Inventories, net | 2,344 | |||
Prepaid expenses and other assets | 1,223 | |||
Revenues in excess of billings | 3,463 | |||
Fixed assets, net | 1,264 | |||
Intangible assets | 4,900 | |||
Goodwill | 57,938 | |||
Accounts payable | (3,990 | ) | ||
Accrued liabilities and other expenses | (2,329 | ) | ||
Billings in excess of revenues | (1,752 | ) | ||
Customer Deposits | (1,562 | ) | ||
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Total estimated consideration | $ | 71,804 | ||
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The preliminary goodwill of $57.9 million is primarily attributable to the potential opportunity for the Company to offer full service railing systems in the growing commercial and multi-family markets, access to a complementary product category with a track record of substantial revenue growth, the ability to achieve economies of scale around raw material procurement, an increase in the range of products the Company may offer its core customers, and intangible assets that do not qualify for separable or legal criterion, such as an assembled workforce. The amount of goodwill that is expected to be amortized and deductible for tax purposes in 2017 is $1.1 million. All of the goodwill was recorded to the Trex Commercial Products reportable segment. The fair value attributed to intangible assets, which consists of production backlog and trade names and trademarks, is being amortized straight line over 12 months and is based on the estimated economics of the assets. The fair value attributed to the intangible assets acquired and goodwill was based on assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques.
From July 31, 2017, through September 31, 2017, Trex Commercial Products generated $9.2 million of revenue and incurred a net loss of $75 thousand. The Company incurred $0.5 million of acquisition-related expenses during the nine months ended September 30, 2017, which are included in selling, general and administrative expense.
The following pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the years presented or the results which may occur in the future. The following unaudited pro forma results of operations assume the acquisition occurred on January 1, 2016 (in thousands, except per share amounts):
Nine Months Ended September 30 | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Actual | Pro Forma | |||||||||||||||
Net sales | $ | 442,941 | $ | 384,294 | $ | 475,076 | $ | 427,043 | ||||||||
Net income | $ | 76,829 | $ | 55,217 | $ | 77,570 | $ | 54,978 | ||||||||
Basic earnings per common share | $ | 2.61 | $ | 1.88 | $ | 2.64 | $ | 1.87 | ||||||||
Diluted earnings per common share | $ | 2.60 | $ | 1.86 | $ | 2.62 | $ | 1.86 |
Significant pro forma adjustments included in the above pro forma information include an adjustment to amortization expense for the intangible assets acquired (see Note 9), elimination of transaction costs related to the acquisition as such costs are considered to benon-recurring in nature, an adjustment to compensation expense related to restricted stock units granted in connection with the acquisition, the income tax effects of the adjustments based on a blended statutory rate of 38.0%, and an adjustment to SC Company’s income taxes to the blended statutory rate, as SC Company was treated as a limited liability company for Federal and state income tax purposes.
September 30, 2017 | December 31, 2016 | |||||||
Finished goods | $ | 23,486 | $ | 29,686 | ||||
Raw materials | 21,344 | 20,231 | ||||||
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| |||||
Total FIFO(first-in,first-out) inventories | 44,830 | 49,917 | ||||||
Reserve to adjust inventories to LIFO value | (21,371 | ) | (21,371 | ) | ||||
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| |||||
Total LIFO inventories | $ | 23,459 | $ | 28,546 | ||||
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September 30, 2023 | December 31, 2022 | |||||||
Finished goods | $ | 43,180 | $ | 107,114 | ||||
Raw materials | 52,255 | 69,292 | ||||||
Total FIFO (first-in, first-out) inventories | 95,435 | 176,406 | ||||||
Reserve to adjust inventories to LIFO value | (35,051 | ) | (35,051 | ) | ||||
Total LIFO inventories | $ | 60,384 | $ | 141,355 | ||||
Inventories valued at lower2023, the Company had a reduction in inventory that it does not expect will be replenished by year end. However, the Company estimates that the LIFO liquidation will not have a material impact on cost of sales for the year ended December 31, 2023 and, accordingly, it did not impact the cost (FIFO method) and net realizable value consist of sales for the following (in thousands):
September 30, 2017 | December 31, 2016 | |||||||
Work-in-process | $ | 580 | $ | — | ||||
Raw materials | 1,990 | — | ||||||
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Total FIFO inventories | $ | 2,570 | $ | — | ||||
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The Company utilizes the FIFO method of accounting related to its commercial railing and staging products.Work-in-process includes estimated production costs.
6. | PREPAID EXPENSES AND OTHER ASSETS |
September 30, 2017 | December 31, 2016 | |||||||
Prepaid expenses | $ | 3,190 | $ | 6,209 | ||||
Income tax receivable | — | 4,024 | ||||||
Other | 722 | 167 | ||||||
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|
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Total prepaid expenses and other assets | $ | 3,912 | $ | 10,400 | ||||
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September 30, 2023 | December 31, 2022 | |||||||
Prepaid expenses | $ | 6,859 | $ | 10,787 | ||||
Income tax receivable | — | 23,979 | ||||||
Other | 271 | 339 | ||||||
Total prepaid expenses and other assets | $ | 7,130 | $ | 35,105 | ||||
7. | GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
2017 | ||||
Beginning balance, January 1 | $ | 10,523 | ||
Goodwill recognized from acquisition of SC Company | 57,938 | |||
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| |||
Ending balance, September 30 | $ | 68,461 | ||
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|
Intangible assets acquired from SC Company on July 31, 2017 consist of the following at September 30, 2017:
Net Carrying Amount (in thousands) | Amortization Period | |||||||
(in months) | ||||||||
Intangible assets: | ||||||||
Customer backlog | $ | 4,000 | 12 | |||||
Trade names and trademarks | 900 | 12 | ||||||
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Total intangible assets | 4,900 | |||||||
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Accumulated amortization: | ||||||||
Customer backlog | (683 | ) | ||||||
Trade name | (134 | ) | ||||||
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Total accumulated amortization | (817 | ) | ||||||
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Intantible assets, net | $ | 4,083 | ||||||
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2023, and December 31, 2022, was $14.2 million for Trex Residential. The Company’s intangible assets, purchased in 2018, consist of domain names for Trex Residential. At September 30, 2023, and December 31, 2022, intangible assets were $6.3 million and accumulated amortization was $2.2 million and $1.9 million, respectively. Intangible asset amounts were determined based on the
$0.3 million and $0.3 million, respectively.
8. | ACCRUED EXPENSES AND OTHER LIABILITIES |
September 30, 2017 | December 31, 2016 | |||||||
Sales and marketing | $ | 21,013 | $ | 16,707 | ||||
Compensation and benefits | 10,727 | 13,298 | ||||||
Income taxes | 3,674 | — | ||||||
Manufacturing costs | 1,215 | 1,799 | ||||||
Rent obligations | 739 | 632 | ||||||
Other | 3,959 | 2,257 | ||||||
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| |||||
Total accrued expenses and other liabilities | $ | 41,327 | $ | 34,693 | ||||
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September 30, 2023 | December 31, 2022 | |||||||
Sales and marketing | $ | 45,374 | $ | 19,194 | ||||
Compensation and benefits | 24,470 | 8,646 | ||||||
Operating lease liabilities | 7,409 | 7,488 | ||||||
Manufacturing costs | 3,507 | 3,425 | ||||||
Income taxes | 3,111 | — | ||||||
Other | 5,048 | 5,311 | ||||||
Total accrued expenses and other liabilities | $ | 88,919 | $ | 44,064 | ||||
9. | DEBT |
The Company’s outstanding debt consists of a revolving credit facility.
January 12, 2016,May 18, 2022, the Company, entered intoas borrower; Trex Commercial, as guarantor; BOA, as a Third Amended and Restated Credit Agreement, as amended, with Bank of America, N.A. as Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. (TD)(each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, entered into a Credit Agreement (Credit Agreement) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019.Issuer,facility in an amount not to exceed $60,000,000; and certain other lenders including Citibank, N.A., Capital One, N.A.,Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and SunTrust. the Swing Line Loans are for the purpose of raising working capital and supporting general business operations. Third Amended Credit Agreement as amended, provides the Company, in the aggregate, the ability to borrow an amount up to the Loan Limit during the Term. The Company is not obligated to borrow any amount under the Loan Limit. Within the Loan Limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. Base Rate Loans (as defined in the Credit Agreement) under the Revolving Loans and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term.
December 22, 2024 (Revolving B Loan Term). Previously, under the Credit Agreement, there was no Revolving B Loan. The First Amendment also provided that TD would serve as Syndication Agent.
2023. The weighted average interest rate on the revolving credit facility was 6.11% as of September 30, 2023.
The Company’s ability
As of September 30, 2017, thecompliance covenants. The Company was in compliance with all covenants as of the covenants contained in its debt agreements.September 30, 2023. Failure to comply with the loanfinancial covenants might cause lenders to accelerate thecould be considered a default of repayment obligations under the credit facility, which may be declared payable immediately based on a default.
10. | LEASES |
Nine months Ended September 30, | ||||||||
Supplemental cash flow information | 2023 | 2022 | ||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 6,236 | $ | 6,532 | ||||
Operating ROU assets obtained in exchange for lease liabilities | $ | 1,882 | $ | 7,332 |
Supplemental balance sheet information | September 30, 2023 | December 31, 2022 | ||||||
Operating lease ROU assets | $ | 27,286 | $ | 30,991 | ||||
Operating lease liabilities: | ||||||||
Accrued expenses and other current liabilities | $ | 7,409 | $ | 7,488 | ||||
Operating lease liabilities | 20,197 | 23,974 | ||||||
Total operating lease liabilities | $ | 27,606 | $ | 31,462 | ||||
Maturities of operating lease liabilities | ||||
2023 | $ | 1,893 | ||
2024 | 7,386 | |||
2025 | 5,552 | |||
2026 | 4,851 | |||
2027 | 4,446 | |||
Thereafter | 4,845 | |||
Total lease payments | 28,973 | |||
Less imputed interest | (1,367 | ) | ||
Total operating lease liabilities | $ | 27,606 | ||
11. | FINANCIAL INSTRUMENTS |
2022.
12. | STOCKHOLDERS’ EQUITY |
Numerator: Net income available to common shareholders Denominator: Basic weighted average shares outstanding Effect of dilutive securities: Stock appreciation rights and options Restricted stock Diluted weighted average shares outstanding Basic earnings per share Diluted earnings per share Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 20,098 $ 7,787 $ 76,829 $ 55,217 29,404,049 29,295,284 29,385,722 29,419,958 97,315 116,803 98,905 133,907 76,852 104,631 78,870 81,931 29,578,216 29,516,718 29,563,497 29,635,796 $ 0.68 $ 0.27 $ 2.61 $ 1.88 $ 0.68 $ 0.26 $ 2.60 $ 1.86 Numerator: Net income available to common shareholders $ 65,266 $ 14,423 $ 183,433 $ 174,549 Denominator: Basic weighted average shares outstanding 108,583,009 110,140,496 108,707,699 112,609,684 Effect of dilutive securities: Stock appreciation rights and options 80,256 85,396 72,580 101,967 Restricted stock 39,230 74,125 49,095 76,343 Diluted weighted average shares outstanding 108,702,495 110,300,017 108,829,374 112,787,994 Basic earnings per share $ 0.60 $ 0.13 $ 1.69 $ 1.55 Diluted earnings per share $ 0.60 $ 0.13 $ 1.69 $ 1.55
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock appreciation rights | 17,957 | — | 14,156 | 6,174 | ||||||||||||
Restricted stock | 330 | 46 | 110 | 15 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Stock appreciation rights | 86,250 | 47,303 | 95,467 | 41,627 | ||||||||||||
Restricted stock | — | 68,008 | 69,764 | 48,552 |
Program
On February 16, 2017, theTrex Board of Directors authorizedadopted a commonnew stock repurchase program (2023 Stock Repurchase Program) of up to 2,960,00010.8 million shares of the Company’sits outstanding common stock, (February 2017and terminated the existing Stock Repurchase Program). AsProgram. This repurchase program has no set expiration date. During the quarterly period ended September 30, 2023, Trex did not repurchase shares of its outstanding common stock under the 2023 Stock Repurchase Program.
13. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
Three Months Ended September 30, 2023 | ||||
Trex Residential and Consolidated | ||||
Timing of Revenue Recognition and Type of Contract | ||||
Products transferred at a point in time and variable consideration contracts | $ | 303,836 | ||
$ | 303,836 | |||
Three Months Ended September 30, 2022 | Reportable Segment | |||||||||||
Trex Residential | Trex Commercial | Total | ||||||||||
Timing of Revenue Recognition and Type of Contract | ||||||||||||
Products transferred at a point in time and variable consideration contracts | $ | 177,776 | $ | — | $ | 177,776 | ||||||
Products transferred over time and fixed price contracts | — | 10,696 | 10,696 | |||||||||
$ | 177,776 | $ | 10,696 | $ | 188,472 | |||||||
Nine months Ended September 30, 2023 | ||||
Trex Residential and Consolidated | ||||
Timing of Revenue and Type of Contract | ||||
Products transferred at a point in time and variable consideration contracts | $ | 899,092 | ||
$ | 899,092 | |||
Nine Months Ended September 30, 2022 | Reportable Segment | |||||||||||
Trex Residential | Trex Commercial | Total | ||||||||||
Timing of Revenue Recognition and Type of Contract | ||||||||||||
Products transferred at a point in time and variable consideration contracts | $ | 878,892 | $ | — | $ | 878,892 | ||||||
Products transferred over time and fixed price contracts | — | 35,058 | 35,058 | |||||||||
$ | 878,892 | $ | 35,058 | $ | 913,950 | |||||||
14. | STOCK-BASED COMPENSATION |
The
was 4,000,000 shares at the time of adoption, and as of September 30, 2023, the total number of shares available for future grants was 3,984,956.
Stock Awards Granted | Weighted-Average Grant Price Per Share | |||||||
Time-based restricted stock units | 36,105 | $ | 72.50 | |||||
Performance-based restricted stock units (a) | 43,307 | $ | 57.54 | |||||
Stock appreciation rights | 18,739 | $ | 70.75 |
Stock Awards Granted | Weighted-Average Grant Price Per Share | |||||||
Time-based restricted stock units | 91,742 | $ | 58.67 | |||||
Performance-based restricted stock units (a) | 96,103 | $ | 56.79 | |||||
Stock appreciation rights | 51,916 | $ | 56.80 |
(a) | Includes |
Nine Months Ended September 30, 2017 | ||||
Weighted-average fair value of grants | $ | 27.97 | ||
Dividend yield | 0 | % | ||
Average risk-free interest rate | 2.0 | % | ||
Expected term (years) | 5 | |||
Expected volatility | 42.2 | % |
Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||
Weighted-average fair value of grants | $ | 27.19 | $ | 33.9 | ||||
Dividend yield | 0 | % | 0 | % | ||||
Average risk-free interest rate | 4.0 | % | 1.9 | % | ||||
Expected term (years) | 5 | 5 | ||||||
Expected volatility | 49.50 | % | 44.85 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock appreciation rights | $ | 28 | $ | — | $ | 220 | $ | 184 | ||||||||
Time-based restricted stock | 417 | 368 | 1,557 | 1,847 | ||||||||||||
Performance-based restricted stock | 538 | 450 | 2,044 | 1,680 | ||||||||||||
Employee stock purchase plan | 54 | 43 | 92 | 95 | ||||||||||||
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Total stock-based compensation | $ | 1,037 | $ | 861 | $ | 3,913 | $ | 3,806 | ||||||||
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|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Stock appreciation rights | $ | 248 | $ | 196 | $ | 660 | $ | 547 | ||||||||
Time-based restricted stock and restricted stock units | 1,098 | 1,012 | 2,904 | 2,818 | ||||||||||||
Performance-based restricted stock and restricted stock units | 1,425 | (1,012 | ) | 3,470 | (5 | ) | ||||||||||
Employee stock purchase plan | 50 | 52 | 350 | 171 | ||||||||||||
Total stock-based compensation | $ | 2,821 | $ | 248 | $ | 7,384 | $ | 3,531 | ||||||||
15. | INCOME TAXES |
$62.1 million and $57.7 million, respectively.
16. | SEGMENT INFORMATION |
Prior to July 31, 2017,
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net sales | $ | 303,836 | $ | 177,776 | $ | 10,696 | $ | 188,472 | ||||||||
Net Income (loss) | $ | 65,266 | $ | 15,287 | $ | (864 | ) | $ | 14,423 | |||||||
EBITDA | $ | 99,359 | $ | 31,692 | $ | (876 | ) | $ | 30,816 | |||||||
Depreciation and amortization | $ | 12,996 | $ | 11,194 | $ | 271 | $ | 11,465 | ||||||||
Income tax expense (benefit) | $ | 21,831 | $ | 5,211 | $ | (283 | ) | $ | 4,928 | |||||||
Capital expenditures | $ | 30,563 | $ | 41,403 | $ | 154 | $ | 41,557 | ||||||||
Total assets | $ | 996,812 | $ | 802,926 | $ | 38,972 | $ | 841,898 |
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net Income (loss) | $ | 65,266 | $ | 15,287 | $ | (864 | ) | $ | 14,423 | |||||||
Interest (income), net | (734 | ) | — | — | — | |||||||||||
Income tax expense (benefit) | 21,831 | 5,211 | (283 | ) | 4,928 | |||||||||||
Depreciation and amortization | 12,996 | 11,194 | 271 | 11,465 | ||||||||||||
EBITDA | $ | 99,359 | $ | 31,692 | $ | (876 | ) | $ | 30,816 | |||||||
Nine months Ended September 30, 2023 | Nine months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net sales | $ | 899,092 | $ | 878,892 | $ | 35,058 | $ | 913,950 | ||||||||
Net Income (loss) | $ | 183,433 | $ | 176,939 | $ | (2,390 | ) | $ | 174,549 | |||||||
EBITDA | $ | 285,271 | $ | 267,725 | $ | (2,344 | ) | $ | 265,381 | |||||||
Depreciation and amortization | $ | 37,194 | $ | 32,435 | $ | 835 | $ | 33,270 | ||||||||
Income tax expense (benefit) | $ | 62,089 | $ | 58,454 | $ | (789 | ) | $ | 57,665 | |||||||
Capital expenditures | $ | 112,920 | $ | 107,937 | $ | 226 | $ | 108,163 | ||||||||
Total assets | $ | 996,812 | $ | 802,926 | $ | 38,972 | $ | 841,898 |
Nine months Ended September 30, 2023 | Nine months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net Income (loss) | $ | 183,433 | $ | 176,939 | $ | (2,390 | ) | $ | 174,549 | |||||||
Interest expense (income), net | 2,555 | (103 | ) | — | (103 | ) | ||||||||||
Income tax expense (benefit) | 62,089 | 58,454 | (789 | ) | 57,665 | |||||||||||
Depreciation and amortization | 37,194 | 32,435 | 835 | 33,270 | ||||||||||||
EBITDA | $ | 285,271 | $ | 267,725 | $ | (2,344 | ) | $ | 265,381 | |||||||
17. | SEASONALITY |
Nine Months Ended September 30, 2017 | ||||||||||||
Residential | Commercial | Total | ||||||||||
Net sales | $ | 433,790 | $ | 9,151 | $ | 442,941 | ||||||
Net income (loss) | $ | 76,904 | $ | (75 | ) | $ | 76,829 | |||||
EBITDA | $ | 128,221 | $ | 806 | $ | 129,027 | ||||||
Depreciation and amortization | $ | 11,087 | $ | 881 | $ | 11,968 | ||||||
Income tax expense | $ | 39,715 | $ | — | $ | 39,715 | ||||||
Capital expenditures | $ | 11,068 | $ | 40 | $ | 11,108 | ||||||
Total assets | $ | 232,663 | $ | 78,533 | �� | $ | 311,196 |
Reconciliation of net income to EBITDA:
Nine Months Ended September 30, 2017 | ||||||||||||
Residential | Commercial | Total | ||||||||||
Net income (loss) | $ | 76,904 | $ | (75 | ) | $ | 76,829 | |||||
Interest | 515 | — | 515 | |||||||||
Taxes | 39,715 | — | 39,715 | |||||||||
Depreciation and amortization | 11,087 | 881 | 11,968 | |||||||||
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EBITDA | $ | 128,221 | $ | 806 | $ | 129,027 | ||||||
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Three Months Ended September 30, 2017 | ||||||||||||
Residential | Commercial | Total | ||||||||||
Net sales | $ | 131,043 | $ | 9,151 | $ | 140,194 | ||||||
Net income (loss) | $ | 20,173 | $ | (75 | ) | $ | 20,098 | |||||
EBITDA | $ | 34,079 | $ | 806 | $ | 34,885 | ||||||
Depreciation and amortization | $ | 3,639 | $ | 881 | $ | 4,520 | ||||||
Income tax expense | $ | 10,208 | $ | — | $ | 10,208 | ||||||
Capital expenditures | $ | 3,943 | $ | 40 | $ | 3,983 | ||||||
Total assets | $ | 232,663 | $ | 78,533 | $ | 311,196 |
Reconciliation of net income to EBITDA:
Three Months Ended September 30, 2017 | ||||||||||||
Residential | Commercial | Total | ||||||||||
Net income (loss) | $ | 20,173 | $ | (75 | ) | $ | 20,098 | |||||
Interest | 59 | — | 59 | |||||||||
Taxes | 10,208 | — | 10,208 | |||||||||
Depreciation and amortization | 3,639 | 881 | 4,520 | |||||||||
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EBITDA | $ | 34,079 | $ | 806 | $ | 34,885 | ||||||
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The Company’s operating resultsResidential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for Trexits products to a later period. As part of its normal business practice and consistent with industry practice, the CompanyTrex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of the Company’sits product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs.
18. | COMMITMENTS AND CONTINGENCIES |
Contract Termination Costs
The Company leases 55,047 square feet of office and storage space that it does not occupy, but has sublet all of the office space for the remainder of the term of its lease obligation, which ends June 30, 2019. The Company estimates that the future sublease receipts will be less than the remaining minimum lease payment obligations under its lease and has recorded a liability for the present value of the expected shortfall.
As of September 30, 2017, minimum payments remaining under the Company’s lease relating to its reconsidered corporate relocation over the years ending December 31, 2017, 2018, and 2019 are $0.5 million, $2.0 million and $1.0 million, respectively. Net minimum receipts remaining under the Company’s existing subleases over the years ending December 31, 2017, 2018 and 2019 are $0.3 million, $1.3 million and $0.7 million, respectively.
The following table provides information about the Company’s liability related to the lease (in thousands):
2017 | 2016 | |||||||
Beginning balance, January 1 | $ | 1,475 | $ | 2,106 | ||||
Net rental payments | (430 | ) | (536 | ) | ||||
Accretion of discount | 78 | 113 | ||||||
Decrease in net estimated contract termination costs | (23 | ) | (85 | ) | ||||
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Ending balance, September 30 | $ | 1,100 | $ | 1,598 | ||||
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deckingTrex Residential products, when properly installed, used and residential railing productsmaintained, will be free from material defects in workmanship and materials and its decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.periods ranging fromperiod for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years. The Company further warrants that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to 25 years, depending onpermanent staining from food and beverage substances or mold and mildew, provided the product and its use.stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price.quantify both the expected numberdetermine a reasonable possible range of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts. The numbercounts to determine its best estimate of future claims received has declined each year since peaking in 2009, although the rate of decline has decelerated in recent years. Additionally, events, such as the 2009 settlement offor which to record a class action lawsuit covering the surfacedefect and communications by the Company in 2013 informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured observable trends in historical claims activity.related liability. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.
2017 | 2016 | |||||||
Beginning balance, January 1 | $ | 33,847 | $ | 29,673 | ||||
Changes in estimates related topre-existing warranties | — | 9,835 | ||||||
Settlements made during the period | (4,425 | ) | (4,188 | ) | ||||
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Ending balance, September 30 | $ | 29,422 | $ | 35,320 | ||||
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The remainder of the Company’s warranty reserve represents amounts accrued fornon-surface flaking claims.
Nine months Ended September 30, 2023 | ||||||||||||
Surface Flaking | Other Residential | Total | ||||||||||
Beginning balance, January 1 | $ | 15,905 | $ | 9,694 | $ | 25,599 | ||||||
Provisions (changes in estimates) | (3,800 | ) | 4,824 | 1,024 | ||||||||
Settlements made during the period | (1,522 | ) | (2,135 | ) | (3,657 | ) | ||||||
Ending balance, September 30 | $ | 10,583 | $ | 12,383 | $ | 22,966 | ||||||
Nine months Ended September 30, 2022 | ||||||||||||
Surface Flaking | Other Residential | Total | ||||||||||
Beginning balance, January 1 | $ | 18,542 | $ | 10,053 | $ | 28,595 | ||||||
Provisions (changes in estimates) | — | 3,098 | 3,098 | |||||||||
Settlements made during the period | (2,243 | ) | (1,901 | ) | (4,144 | ) | ||||||
Ending balance, September 30 | $ | 16,299 | $ | 11,250 | $ | 27,549 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following management discussion should be read in conjunction with the Trex Company, Inc. (Company,(Trex, Company, we or our) Annual Report on Form10-K for the year ended December 31, 20162022 filed with the U.S. Securities and Exchange Commission (SEC) and the condensed consolidated financial statements and notes thereto included in Part I, Item 1. “Financial Statements” of this quarterly report.
NOTE ON FORWARD-LOOKING STATEMENTS
This management’s discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form10-K for the year ended December 31, 20162022 filed with the SEC. These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially. Such risks and uncertainties include, but are not limited to: the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for the Company’s products;products and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, at acceptable prices; increasing inflation in the macro-economic environment; the Company’s ability to maintain product quality and product performance at an acceptable cost; the Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with warranty claims, product replacement and consumer relations expenses related to product quality; and the highly competitive markets in which the Company operates.operates; cyber-attacks, security breaches or other security vulnerabilities; the impact of current and upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics, geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.
OVERVIEW
OperationsThe following MD&A is intended to help the reader understand the operations and Products:current business environment of the Company. The MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes thereto contained in “Item 1. Condensed Consolidated Financial Statements” of this report. MD&A includes the following sections:
• | Operations and Products — a general description of our business, a brief overview of our reportable segments’ products, and a discussion of our operational highlights. |
• | Highlights and Financial Performance – a summary of financial performance and highlights for the three months and nine months ended September 30, 2023, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items. |
• | Results of Operations — an analysis of our consolidated results of operations for the three months and nine months ended September 30, 2023 compared to three months and nine months ended September 30, 2022, respectively. |
• | Liquidity and Capital Resources — an analysis of cash flows; contractual obligations, and a discussion of our capital and other cash requirements. |
OPERATIONS AND PRODUCTS
Prior to December 30, 2022, the Company operated in two reportable segments, Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial). Subsequent to December 30, 2022, the Company Inc. currently operates in two business segments:one reportable segment, Trex Residential. Refer to Note 16, Segments, in the Notes to the Condensed Consolidated Financial Statements in Part I. Item 1. Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information. The Company is focused on using renewable resources within our Trex Residential Products and Trex Commercial Products.segment.
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Trex Residential Products is the world’s largest manufacturer of high-performance composite decking and residential railing products, which are marketed under the brand name Trex® and manufactured in the United States. WeWith more than 30 years of product experience, we offer a comprehensive set of aesthetically appealing and durable,low-maintenance product offerings in the decking, residential railing, porch, fencing trim, steel deck framing, and outdoor lighting categories. A majority of the products areeco-friendly and leverage recycled and reclaimed materials to the extent possible. Trex Residential decking is made in a proprietary process that combines reclaimed wood fibers and recycled polyethylene film.film, making Trex Residential one of the largest recyclers of plastic film in North America. In addition to resisting fading and surface staining, Trex Residential products require no sanding and sealing, resist moisture damage, provide a splinter-free surface and do not require chemical treatment against rot or insect infestation. Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex Residential products less costly than wood over the life of the deck. Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford consumers a wide range of design options. Trex Residential products are sold to distributors and two national retailers who, in turn, sellhome centers for final resale primarily to the residential market.
Trex Commercial Products is a leading national provider of custom-engineered railing systems and one of the leading suppliers of staging equipment. Trex Commercial Products designs and engineers custom railing solutions, which are prevalent in professional and collegiate sports facilities, standardized architectural and aluminum railing systems, which target commercial and high-rise applications, and portable staging equipment for the performing arts, sports, and event production and rental markets. With a team of devoted engineers, and industry-leading reputation for quality and dedication to customer service, Trex Commercial Products are sold through architects, specifiers, and contractors.
Trex Residential Products offers the following products:products through Trex Residential:
Decking and Accessories | Our principal decking products are Trex Transcend® Lineage™, Trex Transcend®, Trex Signature®,Trex Select®, and Trex Enhance® We also offer accessories to our decking products. Trex Hideaway®, a self-gapping universal hidden
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Railing | Our railing products are Trex Transcend Railing, Trex Select Railing, Trex Select T-Railand Trex Signature
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Our Trex Seclusions® composite fencing product is offered through two specialty distributors. This product consists of structural posts, bottom |
We are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark. Our licensed products are:
Trex® Outdoor Furniture™ | A line of outdoor furniture products manufactured and sold by PolyWood, Inc. | |
Trex® RainEscape® and Trex® Protect® | An above joist deck drainage system manufactured and sold by DriDeck Enterprises, LLC. Trex Protect Joist, Beam and Rim tape is a self-adhesive butyl tape that protects wooden deck framing/substructure elements.
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Trex Commercial Products offers the following products:
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Trex® SpiralStairs | A staircase alternative for
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Trex Commercial designed and engineered custom solutions prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rentals. Trex Commercial marketed to architects, specifiers, contractors, and building owners.
Highlights forTrex offered the three months ended Septemberfollowing products through Trex Commercial through December 30, 2017:2022:
Architectural railing systems;
Aluminum railing systems; and
Staging equipment and accessories.
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HIGHLIGHTS AND FINANCIAL PERFORMANCE
Highlights:
Trex Named a 2023 Eco Leader by Green Builder Media. Trex earned highest honors awarded by Green Builder Media in the |
Trex and Keep Arkansas Beautiful Awarded “Recycling Education Program of |
Trex Hosts Investor Day in New York. In September, Bryan Fairbanks, President and CEO laid out the company’s five-year financial targets for |
Trex Launches New Community Recycling Challenge. The updated NexTrex Recycling Challenge combines the company’s award-winning community and school recycling programs and moves from competition-driven model to self-initiated challenge. Additionally, Trex has made the process easier and more equitable, so more participants have the opportunity to earn recognition and rewards for their recycling efforts. Under the new structure, any participating organization that collects at least 1,000 pounds of |
Business Acquisition.
• | Trex Transcend Lineage Recognized in Good Housekeeping’s Renovation Awards. Trex Transcend Lineage has been recognized in Good Housekeeping’s 2023 Home Renovation Awards in the Exterior Enhancements category. Enhancing its appeal, Trex Transcend Lineage offers the look and feel of real wood, but without the environmental impact of deforestation. |
Financial Performance:
The following table presents highlights of our financial performance:
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
($000s omitted, except per share data) | ||||||||||||||||
Net sales | $ | 303,836 | $ | 188,472 | $ | 115,364 | 61.2 | % | ||||||||
Gross profit | $ | 130,895 | $ | 46,208 | $ | 84,687 | 183.3 | % | ||||||||
Net income | $ | 65,266 | $ | 14,423 | $ | 50,843 | 352.5 | % | ||||||||
EBITDA | $ | 99,359 | $ | 30,816 | $ | 68,543 | 222.4 | % | ||||||||
Diluted earnings per share | $ | 0.60 | $ | 0.13 | $ | 0.47 | 361.5 | % |
Nine months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
($000s omitted, except per share data) | ||||||||||||||||
Net sales | $ | 899,092 | $ | 913,950 | $ | (14,858 | ) | (1.6 | )% | |||||||
Gross profit | $ | 381,771 | $ | 338,498 | $ | 43,273 | 12.8 | % | ||||||||
Net income | $ | 183,433 | $ | 174,549 | $ | 8,884 | 5.1 | % | ||||||||
EBITDA | $ | 285,271 | $ | 265,381 | $ | 19,890 | 7.5 | % | ||||||||
Diluted earnings per share | $ | 1.69 | $ | 1.55 | $ | 0.14 | 9.0 | % |
Capital expenditures. During the nine months ended September 30, 2023, our capital expenditures were $112.9 million primarily related to $65.1 million for the Arkansas manufacturing facility, $17.9 million in cost reduction initiatives, $12.2 million for our new corporate headquarters, and $9.5 million related to other capacity expansion, safety, environmental and general support.
Repurchases of common shares. During the nine months ended September 30, 2023, we repurchased 264,896 shares of our outstanding common stock under the 2023 Stock Repurchase Program.
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RESULTS OF OPERATIONS
General. Our results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, interest rates, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from global health pandemics and geopolitical conflicts.
Towards the end of June 2022, Trex Residential experienced a reduction in demand from its distribution partners, spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment and expectations of a general slowing in the economy. As a result, beginning in the third quarter of 2022 Trex Residential’s channel partners met demand partially through inventory drawdown. The drawdown negatively impacted third quarter and fourth quarter 2022 sales. In response to this changed environment, Trex Residential immediately took measures to manage a production slowdown, including labor force reductions, production organization, as well as other cost actions.
Sale of Substantially All of the Assets of Trex Commercial Products, Inc. On July 31, 2017, throughDecember 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial, Products, Inc., we entered into a definitive agreement with SCfor net proceeds of $7.3 million. The divestiture of Trex Commercial reflects our decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of our outdoor living strategy. The divestiture did not represent a strategic shift with a major effect on that date acquired certain assetsthe Company’s operations and liabilitiesfinancial results. As such, the results of SC Company for $71.8 million in cash. The purchase price is subject to adjustment pending final determinationoperations of working capital. We used cash on hand and $30.0 million from our existing revolving credit facility to acquire the business. The acquisition provides us with the opportunity to offer full service railing systemsTrex Commercial are consolidated in the growing commercialCompany’s results of operations for the three months and multi-family markets, access to a complementary product category with a track record of substantial revenue growth, the ability to achieve economies of scale around raw material procurement, and an increase in the range of products the Company may offer its core customers. The unaudited condensed consolidated financial statements include the accounts Trex Commercial Products from the date of acquisition throughnine months ended September 30, 2017.2022.
Net Sales. Net sales consist of sales, and freight, net of returns and discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. Our branding and product differentiation strategy enables us to command premium prices. OurTrex Residential operating results have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home and commercial improvement and residential and commercial construction and can shift demand for our products to a later period.
As part of our normal business practice and consistent with industry practices,practice, we have historically provided our distributors and dealers of our Trex Residential Productsproducts incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of our product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include payment discounts, and favorable payment terms. In addition, we offerterms, price discounts, or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. The timing of salesour incentive programs can significantly impact sales, receivables and inventory levels during the offering period. However, the timing and terms of the majority of our programs are generally consistent from year to year.
Gross Profit.Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw materialsmaterial costs, direct labor costs, manufacturing costs, subcontract costs and freight. Raw materialsmaterial costs generally include the costs to purchase and transport reclaimed wood fiber, reclaimed polyethylene, pigmentation for coloring our products, and commodities used in the production of railing and staging. Direct labor costs include wages and benefits of personnel engaged in the manufacturing process. Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities.
Product Warranty. We warrant that our Trex Residential products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its use. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price. We continue to receive and settle claims for products manufactured at our Nevada facility prior to 2007 that exhibit surface flaking and maintain a warranty reserve to provide for the settlement of these claims. The number of claims received has declined each year since peaking in 2009, although the rate of decline has decelerated in recent years. Additionally, events, such as the 2009 settlement of a class action lawsuit covering the surface defect and 2013 communications made by the Company informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured any observable trends in historical claims activity.
We monitor surface flaking claims activity each quarter for indications that our estimates require revision. Typically, a majority of surface flaking claims received in a fiscal year are received during the summer outdoor season, which spans the second and third fiscal quarters. It has been our practice to utilize actuarial techniques during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful. Our actuarial analysis is based on currently known facts and a number of assumptions. Projecting future events such as the number of claims to be received, the
number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows. The number of claims received in the nine months ended September 30, 2017 was lower than the claims received in the nine months ended September 30, 2016, continuing the historical year-over-year decline in incoming claims, and consistent with our expectations. The average settlement cost per claim experienced in the nine months ended June 30, 2017 decreased compared to the average settlement cost per claim experienced during the nine months ended June 30, 2016, and was consistent with expectations for 2017. We believe that our reserve at September 30, 2017 is sufficient to cover future surface flaking obligations.
The following table details surface flaking claims activity related to our warranty:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Claims open, beginning of period | 2,755 | 2,500 | ||||||
Claims received (1) | 1,931 | 2,257 | ||||||
Claims resolved (2) | (2,003 | ) | (1,774 | ) | ||||
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Claims open, end of period | 2,683 | 2,983 | ||||||
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Average cost per claim (3) | $ | 2,553 | $ | 2,670 |
Selling, General and Administrative Expenses.The largest component of selling, general and administrative expenses is personnel related costs, which includeincludes salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness. These costs consist primarily of advertising, merchandising, and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses may vary from quarter to quarter due, in part, to the seasonality of our business.
RESULTS OF OPERATIONS
On July 31, 2017, Trex Commercial Products, our newly-formed, wholly-owned subsidiary, acquired certain assets and assumed certain liabilities of SC Company for $71.8 million in cash, subject to adjustment pending final determination of working capital at closing. The Company used cash on hand and $30.0 million of funding from its existing revolving credit facility to acquire the assets. The acquired business designs, engineers and markets modular architectural railing systems and solutions for the commercial and multifamily markets, and provides staging, acoustical and seating systems for commercial markets, including sports stadiums and performing arts venues. As a result of the purchase, we will gain access to growing commercial markets, expand our custom design and engineering capabilities, and add the contract architect and specifier communities as new channels for its products. Our consolidated results of operations include the operating results of the acquired business following the date of acquisition. Our consolidated balance sheet at September 30, 2017 includes the acquired assets and any liabilities assumed.
Below is ourthe discussion and analysis of our operating results and material changes in our operating results for the three months ended September 30, 2017 (20172023 (2023 quarter) compared to the three months ended September 30, 2016 (20162022 (2022 quarter), and for the nine months ended September 30, 2017 (20172023 (2023 nine-month period) compared to the nine months ended September 30, 2016 (20162022 (2022 nine-month period).
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Three Months Ended September 30, 20172023 Compared To The Three Months Ended September 30, 20162022
Net Sales
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total net sales | $ | 140,194 | $ | 106,168 | $ | 34,026 | 32.0 | % | ||||||||
Residential net sales | $ | 131,043 | $ | 106,168 | $ | 24,875 | 23.4 | % | ||||||||
Commercial net sales | $ | 9,151 | — | $ | 9,151 | N/A |
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total net sales | $ | 303,836 | $ | 188,472 | $ | 115,364 | 61.2 | % | ||||||||
Trex Residential net sales | $ | 303,836 | $ | 177,776 | $ | 126,060 | 70.9 | % | ||||||||
Trex Commercial net sales | N/A | $ | 10,696 | N/A | N/A |
Total net sales in the 2023 quarter were higher compared to net sales in the 2022 quarter resulting in an increase of $115.4 million, or 61.2%. The 32.0% increase in net sales was substantially all due to increased volume which was the result of strong secular trends in the 2017 quarter compared to the 2016 quarter was due primarily to volume growth in our Trex branded decking and railing products. The volume growth was positively impacted by continued strength in the remodeling sector, our marketing programs aimed at taking market share from wood, and the healthy demand across our full suite of outdoor living products with deckingcategory and railing products asby the major growth contributors. The remaining increase resulted from net salesnon-recurrence of our recently acquired commercial products segment for the period fromchannel inventory drawdown that occurred during the date of acquisition of July 31, 2017 through quarter end.2022 quarter.
Gross Profit
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of sales | $ | 84,910 | $ | 76,223 | $ | 8,687 | 11.4 | % | ||||||||
% of total net sales | 60.6 | % | 71.8 | % | ||||||||||||
Gross profit | $ | 55,284 | $ | 29,945 | $ | 25,339 | 84.6 | % | ||||||||
Gross margin | 39.4 | % | 28.2 | % |
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of sales | $ | 172,941 | $ | 142,264 | $ | 30,677 | 21.6 | % | ||||||||
% of total net sales | 56.9 | % | 75.5 | % | ||||||||||||
Gross profit | $ | 130,895 | $ | 46,208 | $ | 84,687 | 183.3 | % | ||||||||
Gross margin | 43.1 | % | 24.5 | % |
Gross profit as a percentage of net sales, gross margin, increased to 39.4%was 43.1% in the 20172023 quarter from 28.2%compared to 24.5% in the 20162022 quarter. Excluding the $3.8 million dollar benefit from a reduction of the surface flaking warranty reserve, gross margin for the 2023 quarter an improvement of 11.2%was 41.8%. Gross profitExcluding Trex Commercial, gross margin for the 2022 quarter was 25.4%. The increase in gross margin in the 20162023 quarter included a $9.8 million increasewas the result of higher volume, cost out initiatives, and positive plant performance. The 2022 quarter was negatively impacted by our channel partners inventory drawdown to the warranty reserve related to surface flaking. Excluding this charge, the 2017 quarter gross margin increased by 2.0%, reflecting a 3.1% improvement in residential through cost reduction initiatives, lower sales of excess polyethylene film, lower cost raw materialsrightsize their inventories and increased capacity utilization, partially offset by the gross margin contribution from commercial products.additional costs as we restructured our operations for reduced production levels.
Selling, General and Administrative Expenses
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses | $ | 24,919 | $ | 19,379 | $ | 5,540 | 28.6 | % | ||||||||
% of total net sales | 17.8 | % | 18.3 | % |
The $5.5 million increase in selling,
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses | $ | 44,532 | $ | 26,857 | $ | 17,675 | 65.8 | % | ||||||||
% of total net sales | 14.7 | % | 14.2 | % |
Selling, general and administrative expenses increased $17.7 million in the 20172023 quarter. The increase was primarily related to a $10.6 million increase in personnel related expenses including incentive compensation. The 2022 quarter compared to the 2016 quarter resulted primarily from an increase resulting from the SC Company acquisition and an increaseincluded a $2.9 million reduction in incentive compensation and $1.2 million related to marketing, branding and advertising spend in supportrestructuring of our market growth strategies. As a percentage of net sales, total selling, general and administrative expenses decreased by 0.5% in the 2017 quarter comparedoperations to support our channel partner inventory drawdown. Other changes to the 2016 quarter.2023 quarter included a $5.8 million increase in branding expenses and a $1.5 million increase to other expenses.
Provision for Income Taxes
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Provision for income taxes | $ | 10,208 | $ | 2,702 | $ | 7,506 | 278 | % | ||||||||
Effective tax rate | 33.7 | % | 25.8 | % |
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Provision for income taxes | $ | 21,831 | $ | 4,928 | $ | 16,903 | 343.0 | % | ||||||||
Effective tax rate | 25.1 | % | 25.5 | % |
The effective tax rate for the 20172023 quarter increased by 7.9% comparedof 25.1% was comparable to the effective tax rate of 25.5% for the 2016 quarter primarily due to the tax effects of higher excess tax benefits related to the settlement or vesting of restricted stock or restricted stock units recognized in income tax expense during the 2016 quarter compared to the 20172022 quarter. In 2016, we adopted Financial Accounting Standards Board Accounting Standards UpdateNo. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The standard requires that excess tax benefits of the settlement or vesting of time-based restricted stock or time-based restricted stock units and performance-based restricted stock or performance-based restricted stock units be recorded within income tax expense. Prior to adoption this amount would have been recorded as an increase in additionalpaid-in capital. As a result of adoption of the standard, the provision for income taxes for the 2016 quarter was adjusted to $2.7 million from the $3.6 million previously reported.
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Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)1 (in(dollars in thousands)
Reconciliation of net income (GAAP) to EBITDA and EBITDA margin (non-GAAP):
Three Months Ended September 30 | 2017 Residential | 2017 Commercial | 2017 Total | 2016 Total | ||||||||||||
Net income (loss) | $ | 20,173 | $ | (75 | ) | $ | 20,098 | $ | 7,787 | |||||||
Interest | 59 | — | 59 | 77 | ||||||||||||
Taxes | 10,208 | — | 10,208 | 2,702 | ||||||||||||
Depreciation and amortization | 3,639 | 881 | 4,520 | 3,444 | ||||||||||||
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EBITDA | $ | 34,079 | $ | 806 | $ | 34,885 | $ | 14,010 | ||||||||
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Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net Income (loss) | $ | 65,266 | $ | 15,287 | $ | (864 | ) | $ | 14,423 | |||||||
Interest (income), net | (734 | ) | — | — | — | |||||||||||
Income tax expense (benefit) | 21,831 | 5,211 | (283 | ) | 4,928 | |||||||||||
Depreciation and amortization | 12,996 | 11,194 | 271 | 11,465 | ||||||||||||
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EBITDA | $ | 99,359 | $ | 31,692 | $ | (876 | ) | $ | 30,816 | |||||||
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Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total EBITDA | $ | 34,885 | $ | 14,010 | $ | 20,875 | 149 | % | ||||||||
Residential EBITDA | $ | 34,079 | $ | 14,010 | $ | 20,069 | 143 | % | ||||||||
Commercial EBITDA | $ | 806 | — | $ | 806 | N/A |
Three Months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total EBITDA | $ | 99,359 | $ | 30,816 | $ | 68,543 | 222.4 | % | ||||||||
Trex Residential EBITDA | $ | 99,359 | $ | 31,692 | $ | 67,667 | 213.5 | % | ||||||||
Trex Commercial EBITDA | N/A | $ | (876 | ) | N/A | N/A |
The Company uses EBITDA to assess performance as it believes EBITDA facilitates performance comparison between its reportable segments by eliminating interest, taxes, depreciation and amortization charges to income. Total EBITDA increased 149%222.4% to $34.9$99.4 million for the 20172023 quarter compared to $14.0$30.8 million for the 20162022 quarter. EBITDA in the 2016 quarter included a $9.8 million increase to warranty reserve related to surface flaking. Excluding this charge, the 2017 quarterThe increase in Total EBITDA was 46.5%, with Residential EBITDA growth of 43.1%driven primarily by an increase in net sales and Commercial EBITDA contributing 3.4%. The 43.1% Residential EBITDA growth was driven by increased revenue and EBITDA margin expansion.gross profit.
Nine Months Ended September 30, 20172023 Compared To The Nine Months Ended September 30, 20162022
Net Sales
Nine Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total net sales | $ | 442,941 | $ | 384,294 | $ | 58,647 | 15.3 | % | ||||||||
Residential net sales | $ | 433,790 | $ | 384,294 | $ | 49,496 | 12.9 | % | ||||||||
Commercial net sales | $ | 9,151 | — | $ | 9,151 | N/A |
The 15.3% increase in total
Nine months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total net sales | $ | 899,092 | $ | 913,950 | $ | (14,858 | ) | (1.6 | )% | |||||||
Trex Residential net sales | $ | 899,092 | $ | 878,892 | $ | 20,200 | 2.3 | % | ||||||||
Trex Commercial net sales | N/A | $ | 35,058 | N/A | N/A |
Total net sales decreased by $14.9 million, or 1.6%, in the 20172023 nine-month period compared to the 20162022 nine-month periodperiod. The reduction in total net sales was the result of the divesture of Trex Commercial at the end of 2022. The $20.2 million, or 2.3%, increase in Trex Residential net sales was primarily due to volume growththe launch of our Trex branded deckingpremium performance products and railing products. Volume growth was positively impacted by continued strength intheir associated pricing designed to support the remodeling sector andhigh end of the healthy demand across our full suite of outdoor living products, which we believe resulted from our marketing programs aimed at taking market share from wood. The increase in net sales from volume growth of our decking and railing products was offset by the ongoing reduction in the sale of recycled polyethylene film.market.
Gross Profit
Nine Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of sales | $ | 250,473 | $ | 235,312 | $ | 15,161 | 6.4 | % | ||||||||
% of net sales | 56.5 | % | 61.2 | % |
1 | EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of |
Gross profit Gross margin24 $ 192,468 $ 148,982 $ 43,486 29.2 % 43.5 % 38.8 %
Gross Profit
Nine months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of sales | $ | 517,321 | $ | 575,452 | $ | (58,131 | ) | (10.1 | )% | |||||||
% of total net sales | 57.5 | % | 63.0 | % | ||||||||||||
Gross profit | $ | 381,771 | $ | 338,498 | $ | 43,273 | 12.8 | % | ||||||||
Gross margin | 42.5 | % | 37.0 | % |
Gross profit as a percentage of net sales, gross margin, increased to 43.5%was 42.5% in the 20172023 nine-month period compared to 38.8%37.0% in the 20162022 nine-month period. Excluding Trex Commercial, gross margin for the 2022 quarter was 38.1%. The increase in the 2023 nine-month period an improvementwas primarily the result of 4.7%. Gross profit in the 2016 nine-month period included a $9.8 millioncost efficiencies, positive plant performance and materials management. The increase to the warranty reserve related to surface flaking. Excluding this charge, the 2017 nine-month gross margin increased 2.2% reflecting a 2.6% improvement in residential through cost reduction initiatives, lower sales of excess polyethylene film, lower cost raw materials and increased capacity utilization,was partially offset by the gross margin contribution from commercial products.lower absorption due to reduced production and higher depreciation and utilities.
Selling, General and Administrative Expenses
Nine Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
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Selling, general and administrative expenses | $ | 75,409 | $ | 64,786 | $ | 10,623 | 16.4 | % | ||||||||
% of net sales | 17.0 | % | 16.9 | % |
As a percentage of net sales, selling,
Nine months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses | $ | 133,694 | $ | 106,387 | $ | 27,307 | 25.7 | % | ||||||||
% of total net sales | 14.9 | % | 11.6 | % |
Selling, general and administrative expenses increased minimally during$27.3 million in the 2017 nine-month period compared to the 20162023 nine-month period. The $10.6 million increase was primarily attributablerelated to a $3.7$19.9 million increase in marketing,personnel related expenses including incentive compensation, a $4.5 million increase in branding and advertising spend,expenses, a $1.5 million write off of research and development and other assets, $0.8$2.9 million increase in research and development as we continue to support growth,expenses and an increase resulting from the SC Company acquisition.other expenses.
Provision for Income Taxes
Nine Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Provision for income taxes | $ | 39,715 | $ | 27,871 | $ | 11,844 | 42.5 | % | ||||||||
Effective tax rate | 34.1 | % | 33.5 | % |
Nine months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Provision for income taxes | $ | 62,089 | $ | 57,665 | $ | 4,424 | 7.7 | % | ||||||||
Effective tax rate | 25.3 | % | 24.8 | % |
The effective tax rate increased 0.6% duringfor the 20172023 nine-month period comparedof 25.3% was comparable to the effective tax rate duringof 24.8% for the 2016 nine-month period primarily due to the effect of lower excess tax benefits in the 2017 nine-month period compared to the 20162022 nine-month period.
Reconciliation of net income (GAAP) to EBITDA(non-GAAP):
Nine Months Ended September 30 | 2017 Residential | 2017 Commercial | 2017 Total | 2016 Total | ||||||||||||
Net income (loss) | $ | 76,904 | $ | (75 | ) | $ | 76,829 | $ | 55,217 | |||||||
Interest | 515 | — | 515 | 1,108 | ||||||||||||
Taxes | 39,715 | — | 39,715 | 27,871 | ||||||||||||
Depreciation and amortization | 11,087 | 881 | 11,968 | 10,609 | ||||||||||||
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EBITDA | $ | 128,221 | $ | 806 | $ | 129,027 | $ | 94,805 | ||||||||
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Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (in2 (dollars in thousands)
Nine Months Ended September 30, | $ Change | % Change | ||||||||||||||
2017 | 2016 | |||||||||||||||
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Total EBITDA | $ | 129,027 | $ | 94,805 | $ | 34,222 | 36.1 | % | ||||||||
Residential EBITDA | $ | 128,221 | $ | 94,805 | $ | 33,416 | 35.2 | % | ||||||||
Commercial EBITDA | $ | 806 | $ | — | $ | 806 | N/A |
2 | EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company and its reportable segments. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP and are not meant to be considered superior to or a substitute for our GAAP results. |
The Company uses
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Reconciliation of net income (GAAP) to EBITDA to assess performance as it believesand EBITDA facilitates performance comparison between its reportable segments by eliminating interest, taxes, depreciation and amortization charges to income. margin (non-GAAP):
Nine months Ended September 30, 2023 | Nine months Ended September 30, 2022 | |||||||||||||||
Trex Residential and Consolidated | Trex Residential | Trex Commercial | Consolidated | |||||||||||||
Net Income (loss) | $ | 183,433 | $ | 176,939 | $ | (2,390 | ) | $ | 174,549 | |||||||
Interest expense (income), net | 2,555 | (103 | ) | — | (103 | ) | ||||||||||
Income tax expense (benefit) | 62,089 | 58,454 | (789 | ) | 57,665 | |||||||||||
Depreciation and amortization | 37,194 | 32,435 | 835 | 33,270 | ||||||||||||
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EBITDA | $ | 285,271 | $ | 267,725 | $ | (2,344 | ) | $ | 265,381 | |||||||
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Nine months Ended September 30, | $ Change | % Change | ||||||||||||||
2023 | 2022 | |||||||||||||||
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Total EBITDA | $ | 285,271 | $ | 265,381 | $ | 19,890 | 7.5 | % | ||||||||
Trex Residential EBITDA | $ | 285,271 | $ | 237,725 | $ | 47,546 | 20.0 | % | ||||||||
Trex Commercial EBITDA | N/A | $ | (2,344 | ) | N/A | N/A |
Total EBITDA increased 36.1%7.5% to $129.0$285.3 million for the 20172023 nine-month period compared to $94.8$265.4 million for the 20162022 nine-month period. EBITDA in the 2016 nine-month period included a $9.8 million increase to warranty reserve related to surface flaking. Excluding this charge, the 2017 nine-month periodThe increase in Total EBITDA was 23.3%, with Residential EBITDA growth of 22.5% and Commercial EBITDA contributing 0.8%. The 22.5% Residential EBITDA growth was driven primarily by increased revenue and EBITDA margin expansion.an increase in gross profit.
LIQUIDITY AND CAPITAL RESOURCES
We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facility,facilities, operating leases and normal trade credit terms from operating activities.
At As of September 30, 2017,2023 we had $25.5$4.6 million of cash and cash equivalents.
Sources and Uses of Cash.The following table summarizes our cash flows from operating, investing and financing activities (in thousands):
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Net cash provided by operating activities | $ | 92,837 | $ | 83,579 | $ | 288,225 | $ | 244,393 | ||||||||
Net cash used in investing activities | $ | (82,631 | ) | $ | (4,185 | ) | (112,920 | ) | (108,118 | ) | ||||||
Net cash used in financing activities | $ | (3,329 | ) | $ | (62,452 | ) | (182,986 | ) | (271,443 | ) | ||||||
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Net increase in cash and cash equivalents | $ | 6,877 | $ | 16,942 | ||||||||||||
Net decrease in cash and cash equivalents | $ | (7,681) | $ | (135,168 | ) | |||||||||||
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Operating Activities
Net cashCash provided by operating activities was $92.8$288.2 million induring the 20172023 nine-month period compared to net cash provided by operating activitiesoperations of $83.6$244.4 million induring the 20162022 nine-month period. The netIn general, the $43.8 million increase in cash provided by operating activities reflects higher earnings and reduced investment in working capital in the 2017 nine-month period compared to2023 period. Specifically, cash provided by operating activities was impacted significantly by two offsetting factors, an increase in accounts receivable and a decrease in inventory.
The increase in accounts receivable in the 2016 nine-month2023 period was primarily due to increased sales in the three months ended September 2023 compared to sales in the three months ended September 2022, and, to a lesser extent, a result of differences in payment terms offered to customers in 2023 compared to those offered in 2022. We expect substantially all of the accounts receivables balances as of September 30, 2023 will be collected during the fourth quarter of 2023.
The effect of the increase in accounts receivable was offset, in part, by a decrease in inventory in the 2023 nine-month period compared to an increase in working capital of $12.3 million. This increase was offset by a $21.6 millioninventory in the 2022 nine-month period. The increase in net income.inventory in the 2022 period was a result of the decline in sales that occurred as our distribution partners met demand partially through inventory drawdowns. The decrease in inventory in the 2023 period reflects a return to more normal purchase patterns from our distribution partners.
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Investing Activities
Capital expenditures in the 20172023 nine-month period were $11.1$112.9 million consisting primarily of $8.1related to $65.1 million for general plantthe Arkansas manufacturing facility, $17.9 million in cost reduction initiatives, and $2.2$12.2 million for equipmentour new corporate headquarters, and new product development. Capital expenditures in the 2016 nine-month period were $8.5$9.5 million primarily consisting of $3.3 million for the purchase of equipment, land adjacentrelated to our Winchester, Virginia manufacturing facility,other capacity expansion, safety, environmental and Trex University (ourstate-of-the-art training facility), $2.6 million for general plant cost reduction initiatives, and $2.3 million for process and productivity improvement. Also, in January 2016, the Company sold a portion of the Olive Branch, Mississippi, facility that contained the buildings for $4.2 million.
On July 31, 2017, through its newly-formed, wholly-owned subsidiary, Trex Commercial Products, the Company acquired certain assets and assumed certain liabilities of SC Company for $71.8 million in cash, subject to adjustment pending final determination of working capital at closing. The Company used cash on hand and $30 million of funding from its existing revolving credit facility to acquire the assets.support.
Financing Activities
Net cash used in financing activities was $3.3 million in the 20172023 nine-month period compared toconsisted primarily of net cash used in financing activitiesborrowings under our line of $62.5 million incredit and repurchases of our outstanding common stock.
Stock Repurchase Program. On February 16, 2018, the 2016 nine-month period. The $59.1 million decrease was primarily due to $54.7 million inTrex Board of Directors adopted a stock repurchase activity inprogram of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). The Company has repurchased 10.1 million shares under the 2016 nine-month period.
Stock Repurchase Programs.
Program. On October 22, 2015,May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 3.1510.8 million shares of the Company’sits outstanding common stock, (October 2015and terminated the existing Stock Repurchase Program). This authorization terminated on December 31, 2016.Program. The Company2023 Stock Repurchase Program has no set expiration date and 264,896 shares were repurchased a total of 1,578,952 shares for $53.3 million under the October 20152023 Stock Repurchase Program.Program as of September 30, 2023.
Indebtedness on and after May 18, 2022 and prior to December 22, 2022. On February 16, 2017, the Board of Directors authorized a common stock repurchase program of up to 2.96 million shares of the Company’s outstanding common stock (February 2017 Stock Repurchase Program). As of the date of this report,May 18, 2022, the Company, has made no repurchases underas borrower; Trex Commercial, as guarantor; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. (TD)(each, a Lender and collectively, the February 2017 Stock Repurchase Program.
Indebtedness. Our ThirdLenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, entered into a Credit Agreement (Credit Agreement) to amend and restate the Fourth Amended and Restated Credit Agreement dated as amended, provides usof November 5, 2019.
Under the Credit Agreement, the Lenders agreed to provide the Company with revolving loan capacityone or more Revolving Loans in a collective maximum principal amount of $250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through December 31 of each year$400,000,000 (Loan Limit) throughout the term, which ends January 12, 2021. May 18, 2027 (Term). Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.
The Credit Agreement provides the Company, in the aggregate, the ability to borrow an amount up to the Loan Limit during the Term. The Company is not obligated to borrow any amount under the Loan Limit. Within the Loan Limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. Base Rate Loans (as defined in the Credit Agreement) under the Revolving Loans and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term.
The Company and BofA Securities as a sustainability coordinator, are entitled to establish specified key performance indicators (KPIs) with respect to certain environmental, social and governance targets of the Company and its subsidiaries. The sustainability coordinator and the Company may amend the Credit Agreement for the purpose of incorporating the KPIs and other related provisions, unless the Lenders object to such amendment on or prior to the date that is ten business days after the date on which such amendment is posted for review by the Lenders. Based on the performance of the Company and its subsidiaries against the KPIs, certain adjustments (increase, decrease or no adjustment) to otherwise applicable pricing will be made; provided that the amount of such adjustments shall not exceed certain aggregate caps as in the definitive loan documentation.
Under the terms of the Security and Pledge Agreement, the Company and Trex Commercial, subject to certain permitted encumbrances, as collateral security for the above-stated loans and all other present and future indebtedness of the Company owing to the Lenders grants to BOA, as Administrative Agent for the Lenders, a continuing security interest in certain collateral described and defined in the Security and Pledge Agreement but excluding the Excluded Property (as defined in the Security and Pledge Agreement).
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Indebtedness On and After December 22, 2022. As of December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment) by and among the Company, as borrower, the guarantors party thereto; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD as lender and Syndication Agent; Regions Bank, PNC, and Wells Fargo (each, a Lender and collectively, the Lenders), arranged by BofA Securities as Sole Lead Arranger and Sole Bookrunner, amending that certain Credit Agreement dated as of May 18, 2022, by and among the Company, as borrower, the guarantors party thereto, BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer and the other lenders identified therein (as so amended, the “Credit Agreement”). The First Amendment removes Trex Commercial as a guarantor to any and all indebtedness under the Credit Agreement. As a part of the First Amendment, the Credit Agreement was amended and restated to provide for an additional Revolving B Loan (as hereinafter defined).
Under the First Amendment, the Lenders agreed to provide the Company with a Revolving B Loan consisting of one or more revolving loans in a collective maximum principal amount of $150,000,000 (Revolving B Loan Limit) throughout the term, which ends December 22, 2024 (Revolving B Loan Term). Previously, under the Credit Agreement, there was no Revolving B Loan. The First Amendment also provided that TD would serve as Syndication Agent.
As of December 22, 2022, the Credit Agreement was amended and restated to refer to this loan as the Revolving A Loan. The amended and restated Credit Agreement was made an Exhibit A to the First Amendment. All of the terms of the Credit Agreement apply to the Revolving B Loan. The Credit Agreement continues to include sublimits under the Revolving A Loan for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans under Revolving A Loan are for the purpose of raising working capital and supporting general business operations.
The Notes provide the Company, in the aggregate, the ability to borrow an amount up to the Revolving A Loan Limit during the Revolving A Loan Term and Revolving B Loan Limit during the Revolving B Loan Term. The Company is not obligated to borrow any amount under the revolving loans. Within the respective loan limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. With respect to Revolving B Loans, for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 1.20% and 2.15% and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 0.20% and 1.15%.
At September 30, 2017,2023, we had no$56.5 million in outstanding indebtednessborrowings under the revolving credit facility and borrowing capacity under the facility of $200$493.5 million.
Compliance with Debt Covenants. To remainPursuant to the terms of the Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants contained within our debt agreements, we must maintain specified financial ratios based on levelsas of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinarynon-cash losses) before interest, taxes, depreciation and amortization. At September 30, 2017, we were in compliance with these covenants.2023. Failure to comply with our loanthe financial covenants might cause our lenders to accelerate ourcould be considered a default of repayment obligations under our credit facility, which may be declared payable immediately based on a default.and, among other remedies, could accelerate payment of any amounts outstanding.
We believe that cash on hand, cash from operations and borrowings expected to be available under our revolving credit facilityfacilities will provide sufficient funds to fund planned capital expenditures, make scheduled principal and interest payments, fund warranty payments, and meet other cash requirements. We currently expect to fund future capital expenditures from operations and financing activities. The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex products and new market developments and opportunities.
Capital Requirements. We currently estimate that our capital expenditures In October 2021, we announced plans to add a third U.S.-based Trex Residential manufacturing facility located in 2017Little Rock, Arkansas. The new campus will sit on approximately 300 acres of land and will address increased demand for Trex Residential outdoor living products. The development approach for the new campus will be $15modular and calibrated to $20demand trends for Trex Residential outdoor living products. Construction began on the new facility in the second quarter 2022, and in July 2022, the Company entered into a design-build agreement. As previously announced, the Company anticipates spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit.
Our capital expenditure guidance for 2023 is $145 million to $155 million. OurIn addition to the construction of our third facility located in Arkansas, our capital allocation priorities include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit outour long-term outdoor products growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders.
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Inventory in Distribution Channels.Channels. We sell our Trex Residential decking and residential railing products through a tiered distribution system. We have over 50 distributors worldwide and two national retail merchandisers to which we sell our products. The distributors in turn sell the products to dealers and retail locations who in turn sell the products to end users. Significant increases in inventory levels in the distribution channel without a corresponding change inend-use demand could have an adverse effect on future sales. We cannot definitively determine
Product Warranty. The Company warrants that for the levelapplicable warranty period its Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and its decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.
Products sold on or after January 1, 2023: The warranty period for residential use is 50 years for Transcend® decking, 35 years for Select® decking and Universal Fascia, and 25 years for Enhance® decking and Transcend, Select, Enhance and Signature® railing. The warranty period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of inventory25 years. The Company further warrants that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to permanent staining from food and beverage substances or mold and mildew, provided the distribution channels at any time. We arestain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price.
Products sold prior to January 1, 2023: The warranty period is 25 years for residential use and 10 years for commercial use. With respect to Trex Signature railing, the warranty period is 25 years for both residential and commercial use. The Company further warrants that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not awarefade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of significant changes inappearance, for the levelswarranty period referred to above. If there is a breach of inventory insuch warranties, the distribution channels at September 30, 2017 comparedcompany has an obligation either to inventory levels at September 30, 2016.replace the defective product or refund the purchase price.
Product Warranty. We continueTrex Residential continues to receive and settle claims related tofor decking products manufactured at ourits Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.
To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to determine a reasonable possible range of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts to determine its best estimate of future claims for which to record a related liability. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.
The Company monitors surface flaking claims activity each quarter for indications that its estimates require revision. Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has hadbeen the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a material adverse effect on cash flow from operations,significant portion of all claims has been received for the fiscal year and regularly monitorvariances to annual claims expectations are more meaningful.
Average cost per claim experienced in the adequacynine months ended September 30, 2023 was lower than that experienced in the nine months ended September 30, 2022, which was elevated due to the closure of three large claims, and lower than the Company’s expectations for 2023. The number of incoming claims received in the nine months ended September 30, 2023 was lower than the number of claims received in the nine months ended September 30, 2022, and lower than the Company’s expectations for 2023. After evaluating the declining trend in incoming claims in its actuarial analysis, the Company decreased its estimate of the number of future claims to be settled with payment. As a result of the decrease in estimated future claims, in the three-month period ended September 30, 2023, the Company recorded a reduction of $3.8 million to its warranty reserve.
Inreserve for the 2017 nine-month period and the 2016 nine-month period we paid $4.4 million and $4.2 million, respectively, to settlefuture settlement of surface flaking claims. We estimateThe Company believes the reserve at September 30, 2023 is sufficient to cover future surface flaking obligations.
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The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s financial condition, results of operations or cash flows. The Company estimates that the annual number of claims received will continue to decline over time and that the average settlement cost per claim will increase slightly, primarily due to inflation. If the level of claims received or average settlement cost per claim differs materially from our expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flowflows in future periods. The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $1.1 million change in the surface flaking warranty reserve.
Business Acquisition.On July 31, 2017, throughThe Company also maintains a warranty reserve for the settlement of other residential product warranty claims and records the provision at the time of product sale.
The following table details surface flaking claims activity related to our wholly-owned subsidiary, Trex Commercial Products, Inc., we entered into a definitive agreement with SC Company and on that date acquired certain assets and liabilities of SC Company for $71.8 million in cash.warranty:
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Claims open, beginning of period | 1,729 | 1,759 | ||||||
Claims received (1) | 451 | 507 | ||||||
Claims resolved (2) | (453 | ) | (506 | ) | ||||
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Claims open, end of period | 1,727 | 1,760 | ||||||
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Average cost per claim (3) | $ | 3,977 | $ | 5,200 |
(1) | Claims received include new claims received or identified during the period. |
(2) | Claims resolved include all claims settled with or without payment and closed during the period. |
(3) | Average cost per claim represents the average settlement cost of claims closed with payment during the period. |
Seasonality. The purchase price is subject to adjustment pending final determination of working capital. We used cash on hand and $30.0 million from our existing revolving credit facility to acquire the business.
Seasonality. Our operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for ourits products to a later period. As part of ourits normal business practice and consistent with industry practice, we haveTrex Residential has historically offered incentive programs to ourits distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of ourits product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In addition to the critical accounting policies included in the Company’s Annual Report on Form10-K for the year ended December 31, 2016, critical accounting policies and estimates also include the following policies subsequent to and in connection with the SC Company acquisition:
Revenue Recognition
We recognize revenue using the percentage of completion method measured by the ratio of direct costs incurred to date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and certain indirect costs. Administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recognized when such losses are determined. Changes in job performance, conditions and estimated profitability may result
in revisions to costs and income and are recognized in the period they are determined. Revenues recognized in excess of amounts billed are classified under current assets as costs and estimated earnings in excess of billings. Billings in excess of revenues are classified under current liabilities as billings in excess of costs and estimated earnings.
Goodwill
The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification Topic 350, “Intangibles – Goodwill and Other,” annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill is considered to be impaired when the net book value of the reporting unit exceeds its estimated fair value. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount to determine if it should proceed with the evaluation of goodwill for impairment. If the Company proceeds with thetwo-step impairment test, the Company first compares the fair value of the reporting unit to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. The Company measures fair value of the reporting unit based on a present value of future discounted cash flows and a market valuation approach.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2022. There were no material changes to the Company’s market risk exposure during the nine months ended September 30, 2017.2023.
Item 4. | Controls and Procedures |
The Company’s management, with the participation of its President and Chief Executive Officer who is the(the Company’s principal executive officer,officer) and its Vice President andActing Chief Financial Officer who is the(the Company’s principal financial officer,officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2017. We have excluded Trex Commercial Products, Inc., our wholly-owned subsidiary which is included in our consolidated financial statements, from our assessment of internal control over financial reporting as of September 30, 2017, because it was formed to acquire certain assets and assume certain liabilities of Staging Concepts Acquisition, LLC and Stadium Consolidation, LLC in a business combination on July 31, 2017.2023. Based on this evaluation, the President and Chief Executive Officer and the Vice President andActing Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. In addition, thereThere have been no changes in the Company’s internal control over financial reporting during the nine-monththree-month period ended September 30, 20172023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. | Legal Proceedings |
The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business. Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.
Item 1A. | Risk Factors |
Since December 31, 2022, there have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully consider the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings made with the SEC. You should be aware that such risk factors and other information may not describe every risk we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) The following table provides information relating to the purchases of our common stock during the quarterthree months ended September 30, 20172023 in accordance with Item 703 of RegulationS-K:
Period | (a) Total Number of Shares (or Units) Purchased (1) | (b) Average Price Paid per Share (or Unit) ($) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program | ||||||||
July 1, 2017 – July 31, 2017 | — | — | Not applicable | Not applicable | ||||||||
August 1, 2017 – August 31, 2017 | 918 | $ | 73.76 | Not applicable | Not applicable | |||||||
September 1, 2017 – September 30, 2017 | — | — | Not applicable | Not applicable | ||||||||
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Quarter ended September 30, 2017 | 918 | Not applicable | ||||||||||
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Period | (a) Total Number of Shares (or Units) Purchased (1) | (b) Average Price Paid per Share (or Unit) ($) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) | (d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program | ||||||||||||
July 1, 2023 – July 31, 2023 | — | — | — | 10,535,104 | ||||||||||||
August 1, 2023 – August 31, 2023 | 3,454 | $ | 75.95 | — | 10,535,104 | |||||||||||
September 1, 2023 – September 30, 2023 | 686 | $ | 72.75 | — | 10,535,104 | |||||||||||
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Quarterly period ended September 30, 2022 | 4,140 | — | ||||||||||||||
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(1) | During the three months ended September 30, 2023, 4,140 shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the |
On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. The 2023 Stock Repurchase Program has no set expiration date and 264,896 shares were repurchased under the 2023 Stock Repurchase Program as of September 30, 2023.
Item 5. | Other Information |
N/A
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A copy of the Amended and Restated By-Laws, as amended October 25, 2023, is attached as Exhibit 3.3 hereto and is incorporated by reference.
Appointment of Adam D. Zambanini as Executive Vice President and Chief Operating Officer. On October 25, 2023, our Board of Directors appointed Adam Zambanini to serve as our Executive Vice President and Chief Operating Officer. Mr. Zambanini, age 46, previously served as President of Trex Residential Products since July 2018. There was no change to Mr. Zambanini’s compensation, and the information related to Mr. Zambanini’s compensation set forth in our definitive proxy statement filed on Schedule 14A on March 21, 2023 is incorporated herein by reference.
Item 6. | Exhibits |
The number and descriptionSee Exhibit Index at the end of the following exhibits coincide withQuarterly Report on Form 10-Q for the information required by this Item 601 of RegulationS-K:which is incorporated by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TREX COMPANY, INC. | ||||||
Date: October 30, | By: | /s/ Bryan H. Fairbanks | ||||
Bryan H. Fairbanks | ||||||
(Duly Authorized Officer and Principal Financial |
EXHIBIT INDEX
Incorporated by reference | ||||||||||||||||||
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